Supply Chain Claims – The Same Old story

TT Club is an insurer which specialises in the international freight sector. Here Peregrine Storrs-Fox, the Risk Management Director explores recent findings of his organisation’s on-going analysis of claims from supply chain service providers.

The TT Club is alerting freight transport service providers and cargo handlers operating the global supply chain to the stark fact that there is a persistence of claims in a handful of loss types. The most recent claims analysis found that 66% of its claims by volume and 62% by value can be categorised into just five causes.

The analysis, which was conducted on 7,000 insurance claims each costing more than USD10,000 recorded over the five-year period ending 2014 and totalling USD425 million, revealed that the same five generic causes identified in its previous five year analysis continue to disrupt and cost dearly. (Please refer to the accompanying pie-charts for detail.) The Club particularly draws attention to the continuing concentration of these causes, rather than the ordering of each individual cause since these proportions can be volatile, especially in terms of headline claim value.

All is not doom and gloom however, since risk management and loss prevention initiatives really can be effective in reducing not only losses, but also the largely hidden costs of disruption that ensues. There are many prevention strategies and actions that can be put in place to reduce costs and occurrence of claims, and these should be of paramount importance for the transport industry”.

It is notable that traffic accidents and collisions are significant through the transport industry, firstly outside the port/terminal area, where the cost amounted to USD68 million (16%), but also similar incidents within the port/terminal operations, accounting for a further USD57 million, representing 13% of the claims analysed. Thus, the entire supply chain – represented by freight forwarders, logistics operators, container shipping lines, and ports and terminals – is exposed.

The detailed causes may be varied, but it is striking that these five broad causes dominate. The biggest issues among collisions within cargo handling operations continue to be quay crane boom to ship collisions and accidents within container yards and stacks involving mobile equipment. In these instances, emerging technologies can almost eliminate the risks, particularly where combined with automation.

Many traffic incidents are due to inappropriate speed, but detailed case review frequently demonstrates the impact that effective management culture can have on preventing losses. For example, technology solutions, such as the use of GPS tracking or anti-collision sensors, can only be effective when regularly enforced and integrated into staff management.

The remainder of the top five causes reflect the old chestnuts of theft, fire and cargo packing, which the TT Club has repeatedly highlighted. Theft accounts for USD54 million, where the most vulnerable part of the supply chain, unsurprisingly, is whilst cargo is in transit, although standard site security measures continue to prove critical to reduce theft within terminals and warehouses. A clear emerging risk is cybercrime as the increasingly internet-connected supply chain vulnerabilities are exposed to identify, track and intercept cargo.

Fire is the fourth most costly area, accounting for USD44 million within the latest analysis. This is a most volatile cost area, as evidenced by the disparity in proportion between the number and value of claims. By its nature fire can be devastating and threaten the very survival of a business. Its volatility in impact in the supply chain, however, relates to the fact that both on board ships and in warehouses there is concentration of value. In both these scenarios the impact of cargo mis-declaration is a real and continuing concern, although a significant number of fires can be traced to design or maintenance issues. Building fires are mostly caused by electrical faults and mobile equipment fires by hydraulic faults.

Related to some fires, and currently subject of much international focus, was the issue of cargo packing, amounting to USD41 million in the analysis. TT Club asserts that 65% of cargo damage incidents can be attributed in part to poor or incorrect packing. The importance of the industry developing good practice guidance, such as the CTU Code*, cannot be under-estimated; the challenge for the supply chain industry is to raise its game in terms of its understanding of good practice and awareness of global requirements.

Conducting a thorough claim analysis is an essential part of the TT Club’s risk management strategy. Advising its Members (insureds) on incident prevention strategies and actions that can be put in place to reduce costs and occurrence is of paramount importance.

* The CTU Code of Practice for Packing Cargo Transport Units (CTU’s include road trailers, swap bodies and railcars as well as containers)

Top five most costly insurance claims made by freight forwarders, logistics operators, container shipping lines, and ports and terminals:

Through Transport Mutual Insurance Association Limited and TT Club Mutual Insurance Limited, trading as the TT Club. TT Club Mutual Insurance Limited, registered in the UK (Company number: 02657093) is authorised by the Prudential Regulation Authority and regulated in the UK by the Financial Conduct Authority and Prudential Regulation Authority. In Hong Kong, TT Club Mutual Insurance Limited is authorised and regulated by the Hong Kong Insurance Authority, in Singapore by the Monetary Authority of Singapore and in Australia by the Australian Prudential Regulation Authority. In the United States, TT Club Mutual Insurance Limited is approved as a surplus lines insurer in all states and is accessible through properly licensed surplus lines brokers. The registered offices are: 90 Fenchurch Street, London, EC3M 4ST.

Through Transport Mutual Insurance Association Limited, registered in Bermuda (Company number: 1750) is authorised and regulated in Bermuda by the Bermuda Monetary Authority.